BANGALORE/MUMBAI: Global investors are once again warming up to India's real estate and have raised nearly $2 billion (Rs 11,854 crore) in the past year despite the economic uncertainties and the scepticism surrounding this sector.

Some of the large investments include Abu Dhabi Investment Authority (ADIA) backing Kotak Realty fund, and Sovereign Fund of Oman investing in HDFC. Additionally, Aditya Birla Real Estate Fund, Redfort Capital and JPMorgan are some of the funds that have raised money recently to invest in real estate projects.

On Monday, Kotak Real Estate fund said it had raised $200 million (Rs 1,200 crore) from select group of investors and has firmed commitments to raise $200 million more to close its $400 million (Rs 2,400 crore) eight-year tenure fund to invest in only residential properties in India's six metros. Kotak group has invested around $30 million as sponsors.

"The investor base has consolidated and the nature of investors has undergone a sea change,'' S Sriniwasan, chief executive Kotak Real Estate Fund said. "Today, only long-term investors like large government funds and pension funds are keen on investing in India." He declined to name the investors as it is confidential.

"The transaction size can be large in metros and another benefit of investing in metros is that there is liquidity in these centres as against small cities," Sriniwasan said. The fund had so far raised $1 billion from overseas markets, invested in 32 properties and returned $380 million from six exits with a 23% return. According to Sriniwasan, it is very challenging in today's market to raise capital since investors or LPs are looking at continuity and consistency in management.

"Investors are willing to invest in real estate; however, they are exploring the market for the right projects. We anticipate that in the next few quarters, the momentum in real estate will pick up throwing open more investible options for investors," says Sanjay Dutt, executive managing director South Asia, Cushman & Wakefield.

But money is hard to come by for realty developers with both private equity and banks tightening their purse strings, while non-banking finance companies are making the most of the situation. "We have been very active since the last few quarters and are in the midst of a lot of sensible deal flow. There are attractive opportunities in the market and it will continue this way, at least for the next two years," says Amar Merani, CEO, Xander Finance.

Xander Finance is The Xander Group's Indian NBFC arm specialising in offering credit to Indian businesses, especially in real estate and manufacturing. "Yes, caution does prevail in the market, but we are increasingly getting our terms and structures in place with the right developers, and are actually closing deals," he adds.

While realty funds are cautious, they are looking for future opportunities as well. Sovereign wealth fund of Gulf ADIA has invested in the offshore fund of Kotak Realty Funds -run by KotakMahindra Bank -to pump in $300 million (Rs 1,800 crore) on its behalf in the Indian real estate sector.
ADIA, owned by the Emirate of Abu Dhabi, has also appointed Aditya Bhargava, an India-dedicated investment manager, to look at options to invest in the country. Bhargava had earlier served as the managing director at SITQ India.

However, diminishing interest of private equity funds has led to a sharp drop in investment in this sector. Besides, slowdown in construction activities has left funds with fewer projects to invest in. According to Cushman and Wakefield, PE investments in real estate was at $276 million (Rs 1,638 crore) in first half of 2013, which is 46% lower than the first half of 2012: PEs had invested $514 million (Rs 3,050 crore) in the first half of 2012.

"PE funds continue to show keen interest in the market with a number of deals in discussion. This decline in the quantum of PE real estateinvestment was essentially due to less number deals (12 in H1 2013). Funds are looking at only embarking on projects with strong fundamentals," says Dutt. In June, Oman's State General Reserve Fund and the Government of Singapore Investment Corp (GIC), investment firm Temasek committed to invest $200 million in HDFC Real Estate Fund. These funds will primarily invest in residential projects and redevelopment in cities like Chennai, Pune, Bangalore, Mumbai and Delhi.

"The fund already has a deal pipeline across these cities and has a target net internal rate of return of over 20% with an average ticket size of 40-50 crore," said the person, who did not want to be named.

The Shapoorji Pallonji group has received commitment of $200 million (Rs 1,200 crore) from a Canadian Pension Fund in the $500-million realty fund of Shapoorji Pallonji Investment Advisors. The fund will invest part of its corpus in the development projects of Shapoorji Pallonji group, while at least 60% of the investments will be in external projects.

"As of now, there's a paucity of new quality deals in the market, and due to this, focus is shifting to refinancing than new deals. Almost all funds have had their learning over the last 5-6 years and are now very selective - looking for right opportunity and quality of projects. Transactions have almost dried up in the last 2-3 months," says an official of a realty fund.

In another such transaction, sovereign wealth fund Qatar Investment Authority (QIA) is investing $300 million (Rs 1,800 crore) in Bangalore-based real estate developer and South India's largest office space builder RMZ Corp. QIA will back RMZ to buy IT parks worth Rs 3,000 crore. Jointly, both partners will look at acquiring commercial spaces across Bangalore, Hyderabad, Chennai and Pune. RMZ has already identified the project and the money is expected to be deployed by March 2014.

A detailed email sent to HDFC Real Estate Fund, JPMorgan and QIA remained unanswered, while ADIA and Shapoorji Pallonji refused to comment on their investment.